What Is Blockchain?

Mar 12, 2018

If you've come across talks and headlines on blockchain lately but just can't seem to wrap your mind around it -- you're not alone. According to HubSpot's research, it's one of the most confusing emerging technologies out there.

And while it's still a fairly new concept, blockchain is one of those technologies that could shape the way marketers and businesses work in the not-so-distant future.

That's why we've put together this explainer with answers to some of the most frequently asked questions about blockchain -- from what it is, to how it could impact the work you do.

1. What is blockchain?

Blockchain is a digital method of economic transaction record-keeping -- also known as a ledger. What differentiates it is its security. While blockchain records can be openly viewed by everyone within a given network, no one can edit or delete existing records.

Think of it as a public spreadsheet that can only be updated by solving a very complex math problem. To add a new record --- "block," as it were -- to the ledger, an encryption must be solved.

That's done with computing power -- a machine uses its computing capabilities to mine for the answer to the problem. If that concept sounds familiar, it might be because you've heard the term "mining" before in a similar context.

Once an answer to the encryption problem is discovered, it's verified by everyone within the network. If the answer is correct, the new block with transaction details or other new information is added to the ledger, and what's essentially a receipt is generated as proof -- often known in this case as a token or coin. (If you’d like to dive deeper on how blockchain ties into cryptocurrency, check out our full emerging technology explainer.)

2. Why is blockchain a big deal?

While there are various elements of blockchain that make it a rather important technology, its two key capabilities are:

The recording of digital asset transfers -- like secure files or cryptocurrency -- that proves transactions took place and ownership exists.

The inability to overwrite or tamper with its ledger.

Let's take a closer look at the second item on the list. Because a blockchain ledger is distributed to everyone within its network, even if an individual party manages to falsify a block, the technology maintains several copies of the correct version. That also means the technology can reject a "fake" input like this one -- since it recognizes that it doesn't match the other records of it in existence.

That's a key element that makes blockchain so unique. It's unusually transparent, but that's also what keeps it secure: the public, uneditable record of transactions.

What's more, that public distribution lends itself to the decentralization of the ledger -- which means that there isn't a core database that's vulnerable to attacks. That contributes to blockchain's somewhat tamper-proof nature.

3. How does blockchain work?

When it comes to emerging technologies that are not quite easy to understand, use cases are often helpful to determine how, exactly, they work. We like to use the "banana shipment" example: the sequence of events in a shipment of bananas from the warehouse, to the delivery truck, to the grocery store.

As the shipment of bananas makes its way from Warehouse A, to Delivery Truck B, to Grocery Store C, its movement is captured and stored on the electronic blockchain ledger -- which, as we've covered, it's publicly accessible to all involved parties. All three institutions, as well as anyone else on the ledger, have access to that information online.

Delivery Truck B, for whatever reason, loses the bananas -- but doesn't want anyone to know that. So, it informs Grocery Store C that the bananas were, in fact, delivered, even though they were not.

Delivery Truck B might even go so far as to falsify its version of the ledger to create "proof" of a delivery.

But here's the thing: Because of the public visibility and distribution of the "correct" ledger documenting the actual movement of the banana shipment -- which Warehouse A and Grocery Store C both have -- the other parties involved can inspect these records to determine whether or not the delivery actually happened.

That means that even if Delivery Truck B did manage to falsify its own ledger -- which, as we explained about the encryption process earlier, is very difficult to do -- there are systems in place to prevent a false block from appearing on the rest of the ledgers within the network.

4. How can I use blockchain?

Blockchain's somewhat iron-clad ledger and security features underscore its potential benefits to any business that transmits secure, sensitive data.

But because blockchain is still widely misunderstood -- not to mention, in its earliest stages of use -- for the most part, its use cases remain niche in nature.

The technology shows great promise, however. And while it could be sometime before blockchain becomes mainstream, there are certain areas where it can impact and benefit small-to-midsize businesses (SMBs).

One such area is supply chain management. An SMB concerned with tracking the movement of goods through a supply chain -- especially where things like environmental sustainability or fair labor are involved -- will want to pay closer attention to improvements in blockchain technology.

The same principle applies to data storage, which is one of the biggest potential use cases for blockchain. Again, here's an area where the inability to modify ledger-based storage makes blockchain methods superior to secure databases that, when considering recent data breaches, are often looked upon as questionable.

Within that same vein, blockchain shows strong potential in the area of password protocols. It's one of the top two contenders in the possible disruption to the current, fragmented system of password management -- the other being biorecognition methods (think: Face ID and digital fingerprinting).

If blockchain technology successfully addresses and works to remedy fragmented password management, SMBs may want to consider an investment -- especially businesses with user accounts and login protocols.

"Blockchain technology is going to change consumer behavior around ownership and security," says Matthew Barby-Howells, HubSpot's Director of Acquisition. "Now, we feel much safer having a business own and manage our sensitive information, rather than bearing the burden ourselves."

"The rise of decentralization and the ability to have more control over your own personal assets will change that mindset," he continues. "More and more businesses will be pressured to shift data ownership back to their customers. Those that resist may get left behind."